Daily Archives: January 21, 2010

The Supreme Court has made an important ruling on campaign finance.

McCain-Feingold required that [corporations] channel their campaign spending by creating a special fund, known as a political action committee, which can accept donations from employees, shareholders and other affiliates. Advocates argued that the law was a valid way to prevent special-interest funds from distorting elections.

But Justice Kennedy wrote [for the 5-4 majority] that the effort to divide corporate political spending into legal and illegal forms chilled political speech. “When government seeks to use its full power, including the criminal law, to command where a person may get his or her information or what distrusted source he or she may not hear, it uses censorship to control thought,” he wrote. “This is unlawful.”

To understand the background, and to see why this is a bad, needlessly sweeping, decision, read these columns by Stuart Taylor: Campaign money and Chief Justice, and Campaign finance and corporations. Back in September, Taylor wrote:

The Supreme Court, especially Chief Justice John Roberts, is at a crossroads.

The immediate issue is whether to demolish Congress’s overly broad, 62-year-old ban on corporate spending in federal elections or, instead, carve out a sensible exception.

The broader question is whether Roberts and Justice Samuel Alito will aggravate the Court’s polarization and give plausibility to charges of conservative judicial activism by providing the fourth and fifth votes for demolition of the ban, and of two important precedents as well…

Roberts and Alito would thereby be passing up a golden opportunity for principled compromise held out by liberal Justice John Paul Stevens. He credited a National Rifle Association amicus brief, by conservative lawyer Charles Cooper, with suggesting (as its second-favorite outcome) what Stevens called “the wisest narrow solution of the problem before us.” That would be excising with a scalpel, not a meat ax, the one serious First Amendment defect in the campaign finance rules now before the Court.

The defect is Congress’s decision in adopting the 2002 McCain-Feingold law to add to its justifiable ban on “electioneering” broadcast ads by business corporations an utterly unjustified amendment by the late Sen. Paul Wellstone, D-Minn., extending the ban to nonprofit ideological corporations. These include the NRA, the Sierra Club, the ACLU, Citizens United, and other large and small groups of like-minded individuals who want to pool their funds to promote their political views…

The Wellstone amendment’s transparent purpose was, as supporters made clear in floor debate, to muffle criticism (“negative attack ads”) of themselves and other incumbents. The justices should strike down the Wellstone amendment, as Stevens suggested, while leaving intact the McCain-Feingold ban on “electioneering”…

They chose the meat ax.

Dana Milbank is right.

For Democrats, the only good thing to come from Tuesday’s loss of the Senate election in Massachusetts is this: It could wipe the grin off Robert Gibbs’s face.

I think the White House spokesman is a small but not negligible part of Obama’s problem. Gibbs was never all that appealing, as far as I could see, but he’s become a downright drawback lately. To get away with being annoyed by every question you are asked, you have to have viewers on your side. He did to begin with, but no longer.

Gibbs acts as though he’s playing himself in the movie version of his job. In this imaginary film, he is the smart-alecky press secretary, offering zippy comebacks and cracking jokes to make his questioners look ridiculous. It’s no great feat to make reporters look bad, but this act also sends a televised image of a cocksure White House to ordinary Americans watching at home.

The best thing about Obama’s proposal for new restrictions on banks’ activities is the branding: you cannot do better than the “Volcker rule”. But how the rule would work, if it were ever adopted, is very unclear. No more “proprietary trading” by banks or institutions owning banks? Well, as Lex rightly says, it depends what you mean by proprietary trading.

The detail will make a huge difference. For example, pure proprietary trading – investment by the bank on its own, not clients’ behalf – at JPMorgan Chase contributes well below 1 per cent of revenues. But much client trading involves taking balance sheet positions and then holding them. So when does client work cross the line into prop trading?

Lex is right about something else too:

This is not a return to Glass-Steagall. It is a targeted attack on specific businesses that the government does not wish to back. Yes, those activities can be risky. They will require regulation whether in or outside banks. They were also not the cause of most bank losses.

Exactly.

Suppose Goldman Sachs were to comply with the Volcker rule by relinquishing its bank status (which it adopted after the crisis was upon us, with the authorities’ blessing, to avail itself of the full range of assistance). When the next crisis comes round, would the Treasury be able to let Goldman fail? The Lehman experience answers the question. Lehman was not a commercial bank. If Goldman, having reverted to non-”bank” status, could not be allowed to fail, what would the Volcker rule have achieved? Whether or not Goldman is a bank, it has to be more tightly regulated.

This is mainly a political initiative, as the FT report notes, and not without political risk. One danger is creating and exposing disarray inside the Obama economic team. The new proposal, good or bad, is a U-turn. Geithner has spent months arguing for a different approach. His days must now be numbered. (In Britain, his position would be described as “unassailable”.)

The other risk is Volcker himself. If Obama intends to use him as front-man for populist bank-bashing, I’d bet that before long he will regret it. Volcker is forthright, immensely experienced and widely respected. That is why he is so valuable. But he is also apolitical, fiercely independent, and nobody’s shill. Not the ideal pitch-man.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

Clive Crook’s blog: A guide

Comment: To comment, please register with FT.com. Register for free here. Please also read the FT's comments policy here.
Time: UK time is shown on Clive's posts.
Follow the blog: Links to the Twitter and RSS feeds are at the top of the blog.
Schedule: Clive's column appears in the FT on Mondays and you can read an excerpt of it on this blog.
FT blogs: See the full range of the FT's blogs here.

Archive

« Dec Feb »January 2010
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031